Commissioner of Income-tax Vs. T.M. Porinchu - Court Judgment

Excerpt:
- k.s. paripoornan, j.1. at the instance of the revenue, the income-tax appellate tribunal has referred the following question of law for the decision of this court:'whether, on the facts and in the circumstances of the case, the tribunal was right in holding that there was no gift by shri t. m. francis to his wife and daughter-in-law on his retirement from the firm ?'2. the respondent is an assessee to gift-tax. the matter relates to the assessment year 1974-75. the respondent/assessee was a partner in the firm, standard agencies. he had 1/4th share in the profits of the firm. by a resolution dated march 25, 1974, it was resolved by the partners of the firm that the respondent would retire from the partnership and in his place his wife and daughter-in-law would be admitted as partners taking 1/8th share each. the respondent/assessee retired from the firm on march 31, 1974. the wife and daughter-in-law were taken as partners on april 1, 1974. the gift-tax officer held that the respondent relinquished his v4th share in the right to share the profits of the firm to his wife and daughter-in-law and this resulted in a gift. the plea of the assessee that there was no gift and even if there was that it was exempt under section 5(1)(xiv) of the act was rejected. the goodwill of the firm was computed at three years' purchase of the average of five years' assessed income of the firm and the value of the gift was determined at rs. 91,800. the gift-tax officer proceeded on the basis that the relinquishment was made by the respondent in favour of the other partners. in appeal, the appellate assistant commissioner took the view that the gift was made in favour of the wife and daughter-in-law. on this basis, and by giving relief in the quantum, the value of the taxable gift was assessed at rs. 44,278. in second appeal, the appellate tribunal held that there was no relinquishment by the respondent, either to the other three partners or to his wife and daughter-in-law, attracting tax under the gift-tax act. in this view, the appellate tribunal held that the respondent incurred no liability to gift-tax on his retirement from the firm. the revenue moved the appellate tribunal for referring certain questions of law which, according to it, arose out of the appellate order of the tribunal dated april 3, 1981. in pursuance of the said application, the appellate tribunal has referred the question of law, extracted herein-above, for the decision of this court.3. we heard counsel for the revenue, mr. p. k. r. menon, as also counsel for the respondent/assessee. the facts involved in this case are not in dispute. the respondent was a partner in a firm along with three others. by a resolution dated march 25, 1974, it was resolved that the assessee would retire from the partnership and in his place his wife and daughter-in-law would be inducted as partners. the wife and daughter-in-law of the respondent were admitted as partners of the firm from april 1, 1974. this was done, and could be done, only with the consent of the other three partners. neither the partnership agreement nor the resolution of the partners was included in the paper book for our perusal. the wife and daughter-in-law of the respondent were inducted into the partnership only after the retirement of the respondent from the firm. they were so inducted on april 1, 1974. for that, the consent of the other three partners was essential. there is no material to show that the respondent/assessee had the right to nominate his. successor in the firm. there is no material to show that, as per the original partnership agreement, the respondent had such a right. if the consent of the other partners is necessary to induct the wife and daughter-in-law of the respondent as partners in the firm, it is proof positive that the respondent/assessee had no right to nominate or assign his right in the partnership to any other person. only if the respondent had any right to assign his interest or nominate another in his place in the partnership, the question whether the respondent relinquished any right would arise. on this aspect, there is total paucity of material. the appellate tribunal held that it was not shown that the respondent has any right to relinquish his interest, by induction of his wife and daughter-in-law in the firm as partners, subsequent to the retirement of the respondent from the firm, and so no question of relinquishment or transfer of any right of the respondent either to the other three partners or to the wife and daughter-in-law arises in this case. in this view of the matter, it was held that there was no gift and no question of valuation of the goodwill arises. the appellate tribunal was justified in holding so.4. on this basis, we are of the view that the appellate tribunal was right in holding that there was no gift by the assessee to his wife and daughter in-law on his retirement from the firm.5. our answer to the question referred to this court is in the affirmative, against the revenue and in favour of the assessee.6. a copy of this judgment, under the seal of this court and the signature of the registrar, will be forwarded to the income-tax appellate tribunal, cochin bench, as required by law.